The new HP talks storage play
The new HP talks storage play
HP/Compaq merger one year on - is everything still rosy?
Of all the various businesses that Hewlett-Packard swallowed when it acquired Compaq, storage was meant to be the crown jewel. But will pure play storage vendors, particularly tape manufacturers, steal the crown? Andrew Manners, HP Australia's director network storage division, doesnÕt think so.
It has been almost a year since the completion of the merger between Hewlett-Packard (HP) and Compaq Computer, and Mr Manners believes the merging of both storage product lines has zipped up smoothly. Reclining on a couch at HP's local headquarters in the Sydney suburb of North Ryde, Mr Manners told Image & Data Manager, "From the feel and mood [of customer feedback] most merger concerns are behind us."
"There really are not two companies in this building. There is one product group. We're hoping that customers aren't seeing two companies. From the feedback we have received, they are seeing one," he said.
The US$25 billion merger of HP and Compaq was one of the biggest, juiciest tech stories of 2002, surrounded by management fall outs, lay offs, dropped original equipment manufacturer (OEM) relationships and investor intrigue. A year on and HP claim the merger integration with Compaq is progressing at a nice clip. However, there are still big questions circulating surrounding the future strategy of the new storage business unit at HP, particularly its tape offerings.
In order to get an understanding of the storage division, a brief history lesson is necessary.
A few years ago Compaq, from its acquisition of Digital, had become the second-largest vendor of storage products in the US. The Digital storage group had successfully launched its StorageWorks product line and was aggressively building a sales force and distribution channel just before being bought by Compaq.
Meanwhile HP was figuring out its technology agnostic storage business. The company manufactured disk drives as it developed a forward-thinking product called AutoRaid to simplify the task of managing complex disk arrays. At the same time HP pushed DAT tape drive technology and attempted to make a business out of magneto optical drives and jukeboxes. HP co-developed the Digital Data Storage (DDS) tape standard with Sony in late 1980s. It also co-developed Linear Tape Open (LTO) standards. Today, HP claims to be the leading all manufacturers in sales of DDS tape drives and LTO based Automated Tape (AT) libraries. Mr Manners said HP has a heritage spanning more than 30 years in developing, manufacturing and selling open systems storage technologies. A legacy few other vendors can claim.
Yet over time, for a variety of reasons, HP abandoned being a developer of storage and cast its focus on reselling other people's products, including Storage Technology (StorageTek), into an installed base.
The acquisition of Compaq raised expectations among employees of both companies about what Compaq would be able to do with its focus on storage technology development when merged with the mammoth PC manufacturer.
In May 2002, the newly merged entity announced its storage division, dubbed Network Storage Solutions (NSS), which outlined a three-year technology roadmap for its product line including disk arrays, storage area networks (SANs), network-attached storage (NAS), tape and software. The roadmap included merging some products while phasing out others completely. However HP assures that customer investments will be protected and the company is not going to discontinue any product that does not have a comparable or superior technology to replace it.
The NSS group sells DLT (digital linear tape), Super DLT tape drives and LTO Ultrium tape drives and libraries, but HP is currently phasing out HP's MSL and ESL tape libraries in favor of Compaq's StorageWorks Heritage product line. The StorageWorks tape libraries for the midrange and enterprise customers and a mix of HP and Compaq autoloader technology will find its way to the entry-level market. At the high end of disk arrays, the company plans to keep the StorageWorks Enterprise Virtual Array (EVA) from Compaq, as well as HP's XP array series.
On the decision to stop manufacturing the mid-range family of libraries, Mr Manners said, "At the time of the merger HP was already embarking on a product refresh since the family of mid-range libraries was nearly three years old. In evaluating the alternative offering already sold by Compaq, the new library already incorporated many of the design features being considered. Rather than invest in a refresh, HP chose instead to move forward with a library that was recently voted the gold medal winner in the category of backup hardware."
The new storage roadmap spelled the end of a contract with StorageTek. The old HP resold tape drives, libraries and other tape components manufactured by StorageTek, while the old Compaq sold Quantum's enterprise libraries. In July 2001, HP announced it will phase out its StorageTek-made HP 10/180 (StorageTek model L180) and HP 20/700 (StorageTek model L700) arrays over the next three months. Post-merger HP focuses on the line of Quantum libraries it acquired with Compaq. The company will continue to support the StorageTek libraries with new tape drives through to the end of 2003, and continue to offer tech support for individual libraries for up to five years after the date of their sale to corporate clients.
StorageTek officials from the US said the company is offering rebates and management services to customers using equipment from HP and Compaq, as well as to customers of Quantum ATL.
Phillip Belcher, managing director StorageTek Australia said he was disappointed with the decision.
"The whole thing revolves around the HP Compaq arrangement. Compaq in their own right are strong providers of SANs and had existing relationships. So when the merger with HP happened there was a decision they needed to make as to the relationships they had with their suppliers as Compaq and as HP. For whatever reason, I don't really know what the intonation of what HP or Compaq were or what fell out, they decided they would stay with the suppliers they were using as Compaq," Mr Belcher said. "What it came down to, I'm informed, is that they had to have a rationalisation with the amount of people they were dealing with, and in the tape library side they were told to go with Compaq provider."
"We had a very good relationship with HP. Personally I have a lot of respect for HP. So it was a little sad for us to have to sever the relationship," Mr Belcher added. Under its relationship with HP, StorageTek's boxes were re-branded with a HP logo. Some speculate that customers may not even be aware they are a StorageTek customer Ð not a HP customer. Will StorageTek lose out, if customers don't know it's a StorageTek under the HP wrapper?
"It begs the question that the end-users don't know they are using StorageTek products. And my experience is that they do. When people buy equipment you'll find the IT people in Australia, particularly in the enterprise which is what we're talking about, the high end, are very savvy with what is under the covers," Mr Belcher said.
In the US, StorageTek have published a series of rebate programs to assist HP, Compaq and ATL library users to purchase new library technology or upgrade their current library with new drives and components from StorageTek. Purchase rebates can reach up to US$45,000 depending on the library type and number of drives offered.
Locally, Mr Belcher said that he had not had "direct discussions" with HP regarding how the two companies will support their end-user customers.
"In Australia we did not formalise a rebate program because in our smaller market we are better positioned to prepare an individually tailored storage and services solution with specialised pricing to our customers," Mr Belcher said.
"Typically HP customers of OEMed StorageTek tape products were supported by HP rather than StorageTek. There are full arrangements in place enabling HP to continue to provide ongoing support for these customers. However, if the customer wishes to transition to StorageTek as their support provider we are keen to facilitate this, including assuming support of a broader range of their HP equipment under our Multi-Technology Support Service offerings," he added.
HP isn't too worried about losing customers to StorageTek, according to Mr Manners. "HP had classic Galactica from StorageTek which was at the high end. We replaced Galactica due to economies of scale within HP," Mr Manners said. "StorageTek isn't very happy with us," he added, coyly.
"We go to tender regularly; and allow different organisations to tender. We no longer have a relationship with StorageTek. We have ATL at the high end now, but we go out to tender often and offer StorageTek the opportunity for the business."
So why did HP decide to switch from HP manufactured libraries to OEM products? When asked, Mr Manners conceded there is no difference between the New HP's library offerings and the generic offerings from the manufacturers.
"There is no difference in the library itself, but HP takes the product into the labs and put a guarantee that it will work in this environment. It's customer assurance," he said. "HP offer support till the end of the life cycle."
"Where HP was unable to develop solutions in house, it has partnered with vendors offering the best technology available," he said. "Far from hiding these partnerships, HP has worked extensively with each OEM supplier to help further develop and deliver differentiated HP storage offerings."
Over the years, HP has formed strategic partnerships with EMC, StorageTek, Hitachi, Quantum, and more recently Overland Data and Quantum ATL.
HP has also invested significant research and development resources in developing its automated tape storage offering. Mr Manners said HP intends to remain the number one vendor in automated tape storage, but to do so, HP "requires ongoing collaborative development with OEM partners and our own Tape automation divisions - rather than just buying off the shelf."
Mr Manners uses the example of HP's XP disk array. The array takes the standard Hitachi array as sold by Hitachi Data Systems (HDS) and Sun Microsystems, and adds management applications to make the array easier to incorporate and support in HP-UX environments, as well as on other open systems platforms.
Traditionally Compaq had the breadth of customers and products, whilst HP had the depth, delving into a few large organisations.
"A lot of it is depth. We offer storage from tape drives, to back up, to robust disaster recover for managed environments. If you're working with HP, you've got the opportunity to get the right solution," he said. "From a depth perspective, in tape, we invented or co-developed and offer both DLT and LTO. We offer a breadth of solutions, so we can offer the right solution for every customer."
Mr Manners said customers should look to what a supplier can offer them from a long term perspective.
"In storage you're looking at a possible 10 year investment for your back ups, so you've got to make sure the company you invest in is going to be around in 10 years time," he said. "We merged two profitable organisations. Will the other storage vendors be around in 10 years?"
This is exactly the question that industry watchers and media have asked since the merger, some predicting HP's and Compaq's storage business will not go as planned. Criticisms include that there are too many products that are architecturally opposed to each other. Some say HP's 'finger-in-every-pie' approach may impact individual business units. Not only that, industry watchers say the Compaq side of the company may be undergoing some morale issues with the departure of Michael Cappellas in November to beleaguered WorldCom.
Recently analyst group Gartner gave HP a "caution" rating. In its assessment of HP, Gartner looked at the status of initiatives such as strategy, organisation, products, technology, marketing, financials and support. While HP's storage business rates well at positive, the technology giant overall received a caution rating as a few other business units dragged down the result.
Gartner said this rating means customers should "understand challenges in [the company's] relevant areas; assess short and long term benefit/risk to determine if contingency plans are needed".
Betsy Burton, vice president and research area director at Gartner Research, said HP is rated "caution" due to a number of factors, including Dell's entry into the printer market, morale within its staff, and confusion over how the newly merged entity would become a strong competitor in the emerging Web services market.
"Most of its profits come from its printer distribution business. All Dell has to do is erode HP's printer share by four per cent and that's a big impact on HP," said Ms Burton.
The shadow of job cuts also figured into HP's assessment. Gartner expects the resignation of Mr Capellas to be a further blow to morale.
Ms Burton said, "HP has taken a very strong direction to achieve cost savings. But the question is how they will get there? By cutting people and efforts."
Despite analyst criticism, Mr Manners was upbeat on the progress of the merger.
"We're doing really well. Last quarter we were significantly more advanced whereas Compaq and Digital's merger results were measured in years," he said. "Six months prior to the merger, 6,000 people from both companies [HP and Compaq] were together in a very clean room, working on the results for the merger. No two companies ever had that basis from day one."
Quarter four results, released late November, seem to indicate this homework has paid off. Net income for HP in the October quarter more than tripled pre-merger results last year. Several analysts nudged up estimates for fiscal 2003 suggesting potential upside from management's conservative first-quarter guidance.
It's a coup result for the company, which has faced its share of critics, and has arguably struggled to overcome them.
Just after the road map was announced, back in March 2001, EMC executive chairman Michael Ruettgers reportedly said the distraction of having huge impending lay offs as a result of the merger will apply drag to HP's innovation, ultimately leaving them behind the storage technology curve.
However, Mr Manners pointed out the company had two product releases in November alone and the storage team has grown by 20 per cent, including sales, services and product marketing.
"HP today continues to make significant investments in storage," he said. "The latest ENSAextended strategy builds on previous ENSA and Federated Storage Area Management (F-SAM) concepts and will drive the software and storage management platforms that will shape the storage industry in the next three to five years. As hardware becomes more of a commodity, HP's value add will be seen and perceived by its customers not in the price of a hard drive or tape mechanism, but rather in the way we provide ease of deployment, scalability, self-healing technologies, data life-cycle management and end to end support," he said.